52 S. Cal. L. Rev. 669 (1978-1979)
Consumption Theory, Production Theory, and Ideology in the Coase Theorem

handle is hein.journals/scal52 and id is 683 raw text is: CONSUMPTION THEORY,
PRODUCTION THEORY, AND
IDEOLOGY IN THE COASE
THEOREM
MARK KELMAN*
The Coase Theorem' is the most significant legal-economic proposition
to gain currency since the early utilitarians identified the maximization
of individual satisfaction with consumer freedom from conscious state
regulation.2 The Theorem is simple in structure, and can be easily un-
derstood by working through a straightforward example.
Problems of entitlement arise whenever two parties interact, e.g., a
manufacturer (P) who pollutes a stream, and water users (U) down-
stream from the manufacturer. In all such interactions, each party is
the but for cause of harm to the other party. Although the water
users could have clean water but for the polluter, so could the polluter
spew forth pollutants without costly (and therefore harmful) abatement
devices but for the desire of the downstream actors to use clean water.3
* Assistant Professor, Stanford University School of Law. B.A. 1972, J.D. 1976, Harvard
University.
The author would like to thank Bruce Ackerman, Paul Brest, Bob Ellickson, Tom Grey, John
Griesbach, Duncan Kennedy, and Art Leff, all of whom made helpful comments on an earlier
draft. Errors, of course, are mine.
1. Coase, The Problem of Social Cost, 3 J.L. & ECON. 1 (1960).
2. See generally J.S. MILL, PRINCIPLFS OF POLITICAL ECONOMY 435-50, 930-31, 950-53
(W.D. Ashley ed. New ed. 1936) (1st ed. London 1849). Mill recognized limits to the laissez-faire
approach. See, e.g., id at 795-801.
3. Richard Epstein has argued that joint but for causation is a legal artifact rather than
a natural fact. The downstream users do not harm the polluter in the natural sense, P is harmed
only insofar as he bears the cost of avoiding the harm to the users, either as a result of a legal
order or by anticipating a legal order. On the other hand, P causes discernible harm to U whether
or not U has to pay P to avoid it. See Epstein, A Theory of Strict Liability, 2 J. LEGAL STUD.
151, 165 (1973). Coase seems correct in arguing that distinctions between natural and legal harms
are not particularly relevant in deciding what liability rules ought to govern. See Coase, supra
note 1, at 12-13. Consider a classic case: a railroad emitting sparks onto a field used for grazing
by a rancher. It is true that the field is passive, that the railroad could not be harmed by the
field except through legal liability for burning it. But this hardly decides the issue-if the rancher

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